Why Solar Panels are Cheaper in Germany

The following guest article was written by Mathias Aarre Maehlum, an Energy and Environmental engineering student from Norway. He frequently writes on the topics of solar power and other green techs. Read more of his work at his site Energy Informative.

The Lawrence Berkley National Laboratory (LBNL) has recently published a study that looks at the price differences in the solar panel industry in Germany and the U.S. By looking at pre-incentivized prices paid for customer-owned systems (third-party-owned systems were not included in the study), they were able to pinpoint the major differences between the two countries.

In the last five years, German solar panel prices have dropped by more than 50%. Some places in the U.S. are almost on par with German prices, but on average the study found a pretty significant gap:

The study found that the soft-costs (i.e. permitting, licensing, connecting to the grid and other business processes) of solar panel installations, which account for everything except the hardware (i.e. solar modules, inverters), were much higher in the U.S. compared to Germany. In fact, average German soft-costs were at $0.62 per watt in 2011 – $2.7 per watt lower than soft costs reported by installers in the U.S. Another way of looking at it is that German soft-costs are 20% of the prices in the U.S.

German installers are more efficient and only averages around 7.5 hours per installation. Due to lower installation costs, soft-costs in Germany are brought down at $0.62 per watt. Costs for permitting, interconnection and inspection (PII) were found to be roughly $0.20 per watt less than in the U.S.

The German solar panel market is the most developed in the world. About one third of the entire world`s photovoltaic capacity is installed in Germany. It is important to realize that what has contributed to this country`s rapid growth in the solar industry (and the rest of their renewable sector) is their feed-in tariff scheme – an intrinsic part of Germany’s Renewable Energy Sources Act (EEG) that was past in law already back in 2000.

A solid framework of government incentives, guaranteeing a fixed price in a fixed timeframe (usually 20 years) for every kWh of clean electricity produced, is what has laid the foundation for secure investments in renewable energy. Many countries have followed Germany and implemented similar schemes to induce growth in their renewable markets. It will be interesting to see if any country will catch up with Germany a couple of years down the line.

The U.S. Department of Energy has just launched the SunShot Prize Competition, where a total of $10 million in prizes will be awarded to solar panel installers who show they consistently are able to lower soft costs to less than $1 per watt (W).

This is excellent, thank you! Very informative. I watched Bjorn Lomburg’s documentary film “Cool It” last night in which he argues some interesting and controversial ideas. However, he stated throughout how expensive solar power actually is so it’s fascinating to see how the installation process can save money.

The value of solar depends on the amount of electricity produced. The best way I can think to get less power out of panels is to put them in the hands of consumers no matter the solar resource at more northern latitudes.

Good analysis. In Germany, as shown above, there are many solar PV systems installed, and many of them on rooftops of people’s houses. In 2012, we had sunny days when solar was delivering half of the country’s electricity demand! Check out http://www.energytransition.de for more!

In 2012, we had sunny days when solar was delivering half of the country’s electricity demand!

As I recall, Arne, there were a few days were solar provided half of the”peak” demand for a few hours, which does not include baseload, which provides most energy. It’s this kind of misinformation from the lay press that keeps the public in the dark about energy policy.

While this is only an example for a particularly sunny day in May, Arne’s statement is true. The solar coverage was actually closer to 55% or roughly 100% of the peak power (on that day). Conventional power plants had to be turned down to their nighttime/baseload output, as they could not compete with solar.

At the spot market only variable costs matter. The utilities can’t sell all of their power on sunny days as their power plants have high variable cost (fuel costs).
The sun does not send you a bill, the coal mine and gas suppliers do.

I stand corrected. Solar did supply roughly half of the total electric energy on that day. Every article I read talked about it providing half of peak power. Real numbers are useful.

But there is no such thing as a free lunch. The sun does send you a bill for the cost of installation, interest on loans, maintenance, and grid use charge. The only thing missing are fuel costs. Germans have one of the highest electric rates in Europe, and their GHG emissions are rising as well.

It’s this kind of misinformation from the lay press that keeps the public in the dark about energy policy.

You mean like Mark Ruffalo claiming on national TV that Germany gets 30% of their energy from the sun? Check out the 5:00 mark of this clip if you want to get an idea of the kind of misinformation being spread around.

I do not believe that and the link does not support that. According to the link, Germans pay three times what we pay where I live in Virginia. That would be an increase of $200 a month.

I said this before but it bears repeating. The cost of producing power with fossil and nukes are pretty much the same any place in the world. The big variable in consumer bills is how much the government taxes energy. Where I live governments cut is about 20% and cleverly disguised in small increments.

That might be true for the electricity price. But consumers don’t pay prices, they pay bills. And the bills of consumers are certainly not 3 times as high as those in Virginia.

Don’t know the tariffs in Virginia, but while rates in Germany are almost four times as high for residential consumers as they are in British Columbia, German household only pay 1.3 times as much as a BC household do. They simply consume only a quarter of what a BC household does. Is the standard of living lower in Germany than in BC or in Virginia, is there energy poverty? I leave this up to you to judge.

Here is another one: Albertans pay 50% more for their power than BC residents do, yet household consumer bills are approximately the same. The simple math behind it is conservation: an average household in British Columbia consumes 50% more than an Alberta household.

If prices were to go up in Virginia, consumption will go down. The average household will pay roughly the same. It’s Economics 101 but for some reasons people are not willing to accept this when it comes to utilities.

I used to follow panel prices on solarbuzz but unfortunately I don’t think those stats are available any more. At the begging of this year I was not expecting modules prices to keep dropping but I have seen mono modules far below $1/W. The same is true for inverters and BOS. No so much for racking since those prices are tied to the market cost of metals. We will see how things look in a year from now. So far it is heaven for consumers!

I’ve read other articles about this study. This is the best one I’ve seen. Comments from installers didn’t believe that it only takes them 7.5 hours to install a system. It could be done if you had enough skilled and low paid workers at a job site, but it would also vary a lot from site to site. I suspect it is also a matter of learning curves and density. America is a big place. Nobody is installing a lot of solar panels in a small area like Germany (almost 4 million square miles US verses 135 thousand Germany).

Why are you comparing electricity generation to transportation fuel? For the sake of argument, lets compare the same PV panel in Arizona and Germany. The EROI would be 4:1 in Germany. Taking into account battery loses, we would be at 3:1. If the actual useful life of PV is 1/3 less than assumed in the LCA, then we are at 1:1.

It doens’t matter how much the cost is, but I think if the government has a really good program about this issue, the cost won’t matter anymore. The sun’s light is free. When will people benefit the positive things brought by the sun? It’s really not fair if only the rich people will have to benefit this innovation. The government must do something about it!

“It’s Economics 101 but for some reasons people are not willing to accept this when it comes to utilities.”

Maybe when you do the math you should try Economics 501.

First, when electricity comes from coal, gas, or nuclear; it is pretty much the same everyplace in the world. If the cost to the consumer is higher per kwh, it is because governments know that they can hide taxes in the utility bills and customers will blame the utility.

Second, electricity provides huge benefits compared to cost. The only major variable is where you live. I love those who somehow think that people live in a mild climate conserve more than those who live in a very cold or hot climate. The other factor, at least in the US, if you are poor and cannot afford to heat house or pay your electric bill; the government will pay it for you.

I can calculate the kwh used to heat water to take a 5 minute shower. It might cost 25 cents in Virginia and 75 cents in Germany. However; nobody is taking fewer showers to save money.

From an ethical standpoint I do things to save hot water but it is not because my government made it more expensive.

My point is that getting people to use less energy is more complicated than just increasing costs.

Now back to electricity! I recently read that the capacity factor for solar in Germany is 11%. That means that the same PV panels in Arizona produce twice as much power as in Germany. Of course, the reason is that the earth tilts on it axis. I am waiting for German leaders to pass a law against that based on Economics 101.

So why is it that British Columbians use 50% more electricity than Albertans do? Is it colder in BC, does the sun shine less, do we shower more often?

Or is it simply that power is 50% more expensive in Alberta than in BC.

You are right that higher electricity prices alone will not be enough to reduce demand. It’s a necessary, but not a sufficient condition. Businesses invest into energy efficiency if it makes economic sense. At 6 Cents a kWh fewer investments pay back within a reasonable time than at 12 Cents. At 30 Cents/kwh you will see a lot of money going into efficiency upgrades.

Finally: no power production is not the same everywhere in the world. The Albertans have power plants right next to the open pit coal mine. You are looking at less than$2 a Gigajoule of fuel costs. Germany has no open pit mines and the few underground mines are only viable with massive subsidies. So they import most of their coal. Some of it comes from Canada. Have a look at the map and you can imagine what it costs to get coal from Alberta to Germany.

One more, Notkit: replace you electric heater with a gas heater or install a solar water heater.

It takes 3 units of coal to make one unit of electricity. Turning this valuable resource to heat water to a mere 40°C is an unnecessary waste. It takes three times more primary energy than heating your water directly with coal , at least two times as much as a gas-fired heater.

Also don’t forget about the losses of your hot water tank. It can be as much as 100% of the kWh you consume as warm water. Did you included these losses in your kWh calculation? You could go to a tankless , on-demand heater to avoid these losses.

Then again, switching your electric water heater to a natural gas fired on-demand heater is probably not worth your while. Electricity is probably just too cheap to make this investment pay for itself.

I try not to speculate on why they do things places where I have never lived.

In Eastern Washington State and Virginia, my HVAC system is a heat pump. When I lived in a very cold climate wood was our main source.

“Finally: no power production is not the same everywhere in the world.”

I am correct. First Germany has lots of coal but I do not think they export. They are building lots of new coal plants. Canada does not have many coal resources and does not export. China used to flood the world market with cheap slave labor coal but can no longer meet their growing demand as of about 2005.

The US and Australia are major coal exporters. Coal from Virginia, West Virginia, and Kentucky is being shipped to places that brag about renewable energy.

“Have a look at the map and you can imagine what it costs to get coal from Alberta to Germany.”

I have a map on my wall at work, “BNSF Coal Map”. I work in the nuclear industry. It is called knowing the competition.

“install a solar water heater”

Designed and installed one when I lived in California.

“It can be as much as 100% of the kWh you consume as warm water.”

Gosh 100% of 25 cents is only 25 cents.

“You could go to a tankless, on-demand heater to avoid these losses.”

Had two of those also! Very cool!

Electric hot water are very good at making hot water. We in the power industry are very good at producing a cheap commodity in the range of 2-5 cents/kwh. This true even when the fossil fuel is shipped half way around the world. Of course nuclear becomes a better choice as the transportation costs of fossil fuel go up.

Here is the fundamental question. My utility does such a good job of making electricity why would I put a solar panel or hot water system on my roof? To the person, all those that recommend such things are pretty much clueless. If solar, tankless, on-demand ect was better; that is what this mechanical engineer would be doing.

This is not to say that someplace else the better choice might be different.